Lululemon Pants Back On Sale After Fixing See-through Problem: Shares Up

Lululemon Athletica Store Boarded Up - Franken...

(Photo credit: Glyn Lowe Photoworks)

Lululemon Athletica Inc. (NASDAQ:LULU) shares rallied on Monday, June 3, after the company solved its see-through pants issue. The company’s pants were back on the shelves once again following recent suspension by the manufacturer. “Lululemon Athletica Inc ‘s black “Luon” pants are back on store shelves, the Canadian retailer said on Monday, following a highly-publicized recall in March after the fabric was deemed too transparent,” reported Chicago Tribune.

The company’s Luon pants were pulled back in March for being too revealing, an issue that the company earmarks could results in a loss of between $57 and $67 million in sales. Analysts also believe that the issue could have been even more fatal to the company’s business had it not solved the matter expeditiously enough. Camilo Lyon, a New York-based analyst for Canaccord Genuity Corp, is quoted by Bloomberg saying;

This is a core product of theirs, and if there’s an ability for the product to be purchased, it will be,” said Lyon, who has a buy rating on the stock. “They needed to make sure the communication with the consumer was perfect, and for the most part they did a good job.”

Nonetheless, the damage seems to have been temporary. Lululemon stock is up 16% since March, indicating that the news was not much of an immediate impact to the stock’s performance. However, this is likely to reflect on the company’s next quarterly results, thus causing a decline thereof.

Lululemon faces competition from the likes of Adidas AG, Nike Inc. (NYSE:NKE), and Under Armour Inc. (NYSE:UA). The Canadian company has very impressive margins with 56% gross margin compared to 43% of Nike, while Adidas and Under Armour are tied at 48%. The company’s most recent quarter revenues grew by a massive 31%, compared to 23% of Under Armour, while Nike registered 9% growth rate. On the other hand, Adidas revenues fell by 2%.

Lululemon Athletica Inc. (NASDAQ:LULU) shares rallied by 1.90% on Monday to close at $79.29. The company currently trades at 42.86 in P/E ratio compared to Under Armour’s 54.31 P/E. However, Adidas and Nike seem to be cheaply priced based on this assessment with P/Es of 32.21X and 24.57x respectively.

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One Response to Lululemon Pants Back On Sale After Fixing See-through Problem: Shares Up

  1. Pingback: Lululemon CEO’s Decision Trumps a Promising Outlook | Market Pitch

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